How to Get Started

Programs to help budding entrepreneurs abound. The problem is, few people who are trying to start companies know anything about those programs or how to contact them

Keep our young entrepreneurs home, says South Dakota, which offers loans of up to $50,000 to recent graduates who open a business. But only two loans have been made since 1993 -- to a computer consulting firm and another in computer-aided design. The state development office says its small staff has been slow in spreading the word.

-- The Wall Street Journal

December 22, 1994

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Ain't that the truth. And not just in South Dakota. In Wisconsin, a state of about 5 million people, approximately 400 programs provide more than 700 distinct types of service for entrepreneurs. New Mexico, a state of 1.5 million, is reputed to have 150 separate programs. The widely known federally sponsored programs -- such as small-business development centers and Small Business Administration loan-guarantee programs -- are included in such counts, but many programs are privately sponsored or managed by state or local governments. The question is, who knows about them? With so many people interested in starting companies in the United States today, and with such an ample supply of programs, one might expect a flourishing, efficient match of clients with programs. The number of programs is flourishing, perhaps, but evidence of efficient matching is scant.

Through our Wisconsin research project, my colleagues and I conducted interviews with people in the process of starting a business. Most of our sample -- two-thirds or more -- had no idea that all those programs and services existed. That is, by the way, a common finding in studies of start-ups. The budding entrepreneurs we interviewed were frequently astonished by the range of programs cited in the interviews, and they disrupted the flow of questioning with questions of their own: how could they gain access to those programs? The fact is, the client load on many programs could easily double or triple if the programs were more widely promoted. (The understaffed offices running busy programs may not be delighted at that prospect.)

Further, when we asked entrepreneurs who had taken advantage of programs about specific help they had received when starting their businesses, they were almost always satisfied with and appreciative of the help they got. In hundreds of interviews in Wisconsin, the most negative comment received was that some time was wasted. Respondents with that reaction were far outnumbered by those who said the help saved the new business. In addition, in follow-up interviews we discovered that those who had received program help in the start-up process were more likely to get their new businesses off the ground. In short, the delivery of services and assistance was well received and had a positive effect.

Policymakers and scholars disagree about what programs are appropriate for assisting new and small businesses. There are, of course, those who favor the survival of the fittest. They argue that no training, advice, or support should be provided to any new businesses -- let the savvy, the strong, and the lucky survive. That argument, of course, could be extended to any type of public-sponsored education and training. Why not abolish public schools and let youngsters struggle to learn reading, writing, and arithmetic on their own? Just as it is in the public interest to provide a basic education to all, it may also be in the public interest to provide all with the opportunity to learn the basics of self-employment or entrepreneurship. A society that encourages its young to be entrepreneurial should be willing to show the young the basics of safe start-ups.

Others suggest that if general economic growth is to be emphasized, only the small proportion of start-ups with high-growth potential -- from 5% to 10% of the total number of start-ups -- should receive serious public assistance. The other 90% to 95% should be left to their own devices. Such a proposal might, in principle, be more cost-effective, as it would focus public resources on the businesses most likely to create economic growth. But no one has, as yet, figured out how to identify -- before the fact -- the high-growth companies. Further, such a policy could embitter those not chosen for assistance, which could be a substantial political group.

One solution, adopted in some states, is to provide different levels of service to start-ups with different levels of potential. All new small businesses have access to a minimal level of assistance; those with a greater potential for growth or exports or job creation are provided with more sophisticated and extensive services.

But the most central problems have yet to be resolved. They are the systematic coordination of the delivery of services and the raising of public awareness about what is available. Although many service programs engage in promotional efforts, they are not fully aware of the high rates of turnover among their potential clients. While up to 4% of all adults are trying to start new businesses at any given time, the typical person may be in that role for only a year or two. Since new people are constantly beginning the start-up process, service programs must promote themselves continually. It's not so different from being in the market for a car -- only then do you pay attention to the always-present new-car ads.

Coordinating the promotion of and systemizing access to existing programs for entrepreneurs are probably the most cost-effective ways to enhance the success of new businesses. Before more programs are designed and implemented, we should figure out a way to develop an inventory of all available assistance and coordinate promotion efforts. An 800 phone number providing access to a computerized screening procedure could match potential clients with the most appropriate, most geographically convenient service for their situation. That could be done at either the state or the national level.

Such a collaborative effort will not, however, be easy. It will require the voluntary cooperation of a disparate mass of state, local, and federal public programs, along with not-for-profit and private programs. As with the organizations supported through the United Way, individual groups may fear losing their identity if they become one part of a huge collective effort.

A final issue is the systematic evaluation of the benefits provided by the programs. While it may be in the public interest to know the economic gains that result from publicly sponsored assistance to businesses, those responsible for delivering privately sponsored services may not be so eager for a serious assessment -- annual counts of the clients served may be quite adequate for the survival of their programs. However, the only way to develop objective evaluations of the costs and benefits of program delivery will be through a careful tracking of the resources used and the outcomes. Only then can the delivery system be fine-tuned for optimal efficiency.

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Paul Reynolds is the Coleman Chairholder in Entrepreneurial Studies at Marquette University, in Milwaukee. The research on Wisconsin was completed with Professor Sammis White, of the University of Wisconsin, and others, with support from the Wisconsin Housing and Economic Development Authority.